CHARTING YOUR COURSE TO
T r a d e
P r o m o t i o n
OPTIMIZATION
AMID ECONOMIC STORM,
OPPORTUNITY
This new POI and Accenture study shows how TPO helps
leading companies weather the winds of change by moving
from trade spend management to promotion effectiveness.
CONTENTS
2
Acknowledgements
3
Executive Summary
5
Introduction
5
State of the Industry
7
Five Levels to TPO Maturity (table)
9
Substantial Benefits
11 Trade
Promotion Effectiveness Programs Drive Increased Profits
15
How to Develop Capabilities and Drive Value
15
Results Achieved by TPO Maturity Level (chart)
24
Conclusion
25
Solution Landscape (table)
28
Knowledge Partner Perspectives
36
About the Sponsors
ACKNOWLEDGEMENTS
The PROMOTION OPTIMIZATION INSTITUTE (POI) would like to thank the ACCENTURE
MANAGEMENT CONSULTING team for the opportunity to collaborate on this research and
for its members’ valuable support and assistance in developing this in-depth report on such
a strategic and critical initiative for the industry.
A special thanks to POI Educational Advisory Board members for their active involvement
and input throughout the research effort.
POI would like to express its gratitude to the following members
of the Charting Your Course to TPO project team:
Michael Kantor, MBA, CEO and Founder, PROMOTION OPTIMIZATION INSTITUTE
Kenneth Dickman, Partner––ACCENTURE, MANAGEMENT CONSULTING
Gary Singer, Partner–– ACCENTURE, MANAGEMENT CONSULTING
Victoria A. Barbero, Principal, BARBERO COMMUNICATIONS LLC
Carol Fensholt Nierenberg, Principal, SILVER BOX SOUTHWEST, LLC
POI would also like to thank the leading retailers, manufacturers, and solutions partners,
for their perspectives on trade promotion optimization.
Special thanks to Michael J. Malinoski, Carmen Uys, and the ACCENTURE Global Research
team for their tireless effort and rigorous analysis, and to Dale Hagemeyer of GARTNER for
his support and guidance.
Most of all, POI and ACCENTURE thank the many consumer goods manufacturing and
retailing executives who shared their time, and experiences, with us for this report. Their
collective strength, knowledge, diligence, and collaboration made this report possible.
2
CHARTING YOUR COURSE TO
T r a d e
P r o m o t i o n
OPTIMIZATION
Charting Your Course to
TRADE PROMOTION OPTIMIZATION
AMID ECONOMIC STORM,
OPPORTUNITY
This new POI and Accenture study shows how TPO helps
leading companies weather the winds of change by moving
from trade spend management to promotion effectiveness.
EXECUTIVE SUMMARY
C
hanging shoppers/consumers, combined with a
sustained recession, private label growth, and technology advancements, have all heightened the need
for brand manufacturers and retailers to deliver greater
insight and value to the trading partner relationship.
Beyond managing trade marketing budgets, volume planning, settlement, and payments, manufacturers and retailers
must plan together for volume from production to shelf,
including inventories. They must support integrated promotion plans that meet all stakeholders’ needs. With this state of
affairs in mind, POI is pleased to present its conclusive study,
“Charting Your Course to Trade Promotion Optimization.”
■ Optimization and predictive analytics
■ Integrated trade promotion /volume planning
■ Redefinition of promotional plans to optimize sales, prof-
its, and inventory positions
TPO YIELDS IMPORTANT BENEFITS
Survey findings show that companies that have taken
measurable steps in piloting/implementing TPO are:
■ Up to four times more likely to achieve and benefit from
better promotional forecast accuracy
■ Up to seven times more likely to increase profitability
A COLLABORATIVE EFFORT
This study is a result of a collaborative effort between the
Promotion Optimization Institute (POI) and Accenture.
POI's survey included over 60 leading North American
and Global Consumer Packaged Goods (CPG) manufacturer, wholesaler, and retailer companies (with multiple
respondents per company). The joint team analyzed and
interpreted survey results to identify steps companies need
to take to go from operational trade promotion management (TPM) capabilities to optimizing their trade promotion investments through implementing new analytic
capabilities, decision frameworks, and approaches that
drive insight to action.
This report sets out where the industry stands on TPM
and Trade Promotion Optimization (TPO), and presents
insights on how companies are moving from control and
accountability of funds/payments (TPM) to optimizing
trade promotion. TPO involves:
■ Volume/business planning
(improved forecasts)
■ Metrics and measurement
(pre- and post-event analysis)
Although TPO is not widespread, the benefits that support
implementing TPO are becoming clear. Companies willing
to integrate their decision-making process completely
(including culture, people, and technology) are beginning to
improve their forecast accuracy and decrease trade spending as a percent of revenue. As a result of more effective
promotions, over 60 percent of the surveyed companies that
are implementing TPO have increased their profitability.
Data, models and knowledge are available to optimize
trade promotion, but TPO also requires an understanding, a plan, and a willingness to execute across Marketing,
Sales, Finance, and Supply Chain operations.
JUSTIFYING THE INVESTMENT
How does one justify the nearly $200-billion* expense?
Leading CPG manufacturers strive to be a partner, or
resource, to the retailer, and not just a group of SKUs.
They take it upon themselves to understand their internal
measures and share knowledge as to which promotions
drive the greatest value, thereby increasing the value for
partners and shoppers/consumers.
* POI estimation based on industry discussions and experience.
3
EXECUTIVE SUMMARY
The greatest barriers to trade promotion success can be overcome with planning and preparation.
Successful companies break down internal functional silos and empower customer teams for joint
business planning with trade partners.
SUCCESSFULLY IMPLEMENTING TPO
While companies have made progress with TPO efforts, they
often do not realize anticipated benefits. Obstacles include: systems unable to integrate required data sources, lack of trading
partner collaboration, and limited availability of personnel
with the right analytical skills and expertise.
Companies started to improve their trade promotion capabilities by implementing trade promotion management systems.
These helped to manage funds more efficiently but did little to
increase trade productivity. To do so, management teams need
to develop better plans and course correct during execution.
Capabilities needed to improve trade promotion results are:
aggregate volume pricing, predictive promotion analytics, trade
promotion optimization and post-event causal decomposition.
TPO tools alone will not suffice. To achieve significant benefits,
companies must change their decision frameworks, business
processes, roles and responsibilities, and sometimes their organizational structure. Improvement programs need to focus on
transforming the business along with developing and implementing tools.
Successful programs develop TPO capabilities in five phases:
1. Selection/planning/piloting –– Cross-functional participation
helps identify issues and address critical gaps in trade promotion planning and execution capabilities from the perspectives
of people, process and technology.
2. Business transformation –– Using TPO tools effectively requires
changing the way companies plan and execute decisions and
actions on trade promotion. This includes developing insights,
using new decision frameworks, and measuring progress.
3. Solution delivery
–– TPO tools are decision science solutions,
with core technology grounded in econometric statistical models.
Successful delivery requires not only the core components of
solution delivery but also a focus on data and model preparation.
4. Support and measurement
–– With a capability to measure
implementation and compliance, management can identify
and address hurdles to capability adoption. Once the program
is completed, this capability can continue to measure the performance of trade promotion operations and finance.
4
5. Program management –– During capability development
programs, a full-time program management team is required to
own and improve trade promotion capabilities. After capability implementation, continuous improvement activities are institutionalized and embedded within closed-loop trade promotion
processes.
RECENT INNOVATIONS
Companies are implementing cross-functional, closed-loop
trade promotion planning and execution processes that are supported by advanced analytic TPO pilots and implementations.
These changes enable trading partners to select promotion
events and tactics in a more disciplined way, thereby increasing
ROI. To improve speed to value, we also recommend changing
from a sequential approach to parallel development of TPO
and TPM systems.
SUMMING UP
Companies that successfully implemented TPO spend less time
and fewer resources gathering data and make better use of
trade funds due to greater visibility to ROI. These manufacturers and retailers share data and apply greater consistency in
using tools. TPO enables them to identify the impact of promotion factors, like price points and display types.
While we are only scratching the surface of what makes for an
effective TPO implementation, the greatest barriers to success
can be overcome with planning and preparation. Successful
companies are breaking down silos and empowering customer
teams for joint business planning. They are committing their
organization to consistently contribute to the mutual profitability of the trading partner relationship and success in serving
their shared shopper/consumer.
Today, questions are still being answered. However, more than
ever, leaders are involved in making changes, to instigate, motivate, and provide incentives to accelerate the development of
optimal pricing and promotion solutions to serve today’s shopper/consumer. This study is part of that effort. ■
INTRODUCTION
Discriminating shoppers/consumers, a sustained recession, private label growth: These are
enough to give Consumer Packaged Goods (CPG) manufacturers and retailers a
headache. Help is on the way, though. Technological advancements can help brand
manufacturers and retailers deliver greater insight and value to the trading partner relationship. The Promotion Optimization Institute (POI) in collaboration with Accenture
conducted this study to help companies chart a course to survive in today’s climate.
POI’s survey included over 60 leading North American and global Consumer Packaged
Goods manufacturer, wholesaler and retailer companies (with multiple respondents per
company). The joint team analyzed and interpreted survey results to identify steps companies need to take to go from merely managing trade promotion to optimizing it through
analytics and more effective decision-to-action approaches.
This report presents our findings on where the industry stands on Trade Promotion
Management (TPM) and Trade Promotion Optimization (TPO). It discusses how companies are moving from control and accountability of funds/payments (that is TPM) to
optimizing trade promotions. It closes with what companies need to do to successfully
adopt TPO.
STATE OF THE INDUSTRY
Trade spending averages between 15 and 20 percent of sales for CPG companies, and is
fast approaching a $200 billion conundrum. In the past 20 years spending on promotions
(as a percentage of revenue) has doubled as manufacturers have thrown more and more
money into the marketplace to improve promotional outcomes. POI and Gartner predict this trend will continue until trading partners come to a better understanding of
what it takes to truly collaborate.*
LIMITED SUCCESS WITH TPM
Manufacturers and retailers have made little progress in improving the effectiveness of
their promotions. Often they overlook the cultural and personnel ramifications and
expect to solve the problem with technology. Some engage in fundamentally the same
behaviors while expecting different results. In their defense, however, aside from tactical
scorecards, manufacturers and retailers lack, for example, meaningful tools to assess
which trading partners are most capable of partnering.
Nonetheless, study results prove that while a lack of tools/systems hinders companies
from achieving advanced levels of success (e.g., category profitability, shopper impact),
data is not a constraint to achieving results. Over 90 percent of survey participants were
achieving success with shipment and syndicated data alone (see Benefits section).
* POI and Gartner joint research.
5
SELF-REPORTED MATURITY LEVEL
FOR TPO CAPABILITIES
Study results show that
lack of TPO integrated
Transaction Management
Funds Allocation
Post-Event Evaluation
Collaborative Planning
15% 19%
4%
65%
38%
15%
can be achieved when
58%
58%
15%
Pre-Event Simulation,
Predictive and
Optimization Analytics
solutions limits what
27%
67%
25%
No or Low Capabilities
compared with those
Average Capabilities
companies doing
Above Average/Industry
Leading Capabilities
pre- and post-event
17%
62%
13%
optimization, and
measuring category
effects.
Source: 2011 POI and Accenture "Charting Your Course to TPO" Survey
Today, as seen in the chart above (“Self-Reported Maturity Level for TPO Capabilities”), control and accountability of funds has become table stakes for most manufacturers, with
65 percent of respondents rating themselves as above average in capabilities.
‘Think of TPM as table
TPO initiatives succeed when they are properly aligned with each company’s culture, core strategy,
people, and technology. TPO requires collaboration across departments, and a consistent commitment from top management. The “Promotional Collaboration Capability Matrix” (below) offers a
framework for gaining commitment, advancing skill sets, and fostering an environment that promotes alignment. Although companies can manage transactions with spreadsheets, study results
show that the lack of TPO integrated solutions limits what can be achieved when compared with
those companies doing pre- and post-event optimization, and measuring category effects.
stakes for controlling
PROMOTIONAL COLLABORATION CAPABILITY MATRIX
TPO journey, however,
Optimization and
Collaboration
Pockets of Illicit
Collaboration
and understanding
trade spend. It is still
highly relevant. The
means steadily
improving the ability to
The Frustrated
but Enlightened
model and understand
Manual but
Collaborative
CAPABILITY MATRIX
PERSONNEL
promotional outcomes.
Tech Heavy
Frantic
Collaboration
It is not only relevant
TECHNOLOGY
Business
as Usual
Best of Intentions
but also critical as
CULTURE
Source: POI and Gartner joint research
suppliers seek to
become more relevant
At present, industry leaders are beginning to implement, and see good results (e.g.,
increased profitability, effective trade spend, and improved forecast accuracy) from
advanced capabilities, as they move through the “Five Levels of TPO Maturity,” from transactional to trade promotion optimization (table, next page).
6
with retailers.’
–– Dale Hagemeyer
Managing Vice President
G ARTNER , I NC .
FIVE LEVELS TO TPO MATURITY
Maturity Level
Culture
Personnel
Technology
1 Transactional
Views promotion and associated
cost as a “cost of doing business”
or as a “pricing/placement lever.”
Focused on buyer/ seller
relationship, strictly
transactional.
Maintaining status quo
(distribution, budget, and
assortment) is paramount.
Focused on control and
accountability of funds or
dollars that may fall to the
bottom line. Using spreadsheets to track/manage
funds/payments.
Looks at performance on a postevent brand-specific basis (spend/
incremental volume). Traditional
roles still exist –– Merchandising,
Marketing, Sales, Advertising,
Finance, Operations.
Internal Sales and
Marketing are discussing
brand plans, communicating internally and starting to
refine budgets based on
aggregated sales.
Beginning to use syndicated
data with some post-event
analysis. Beginning to
understand cause and effect
of poor communication.
Internal systems largely
focused on managing/
reducing deductions balance
and dollars spent per promotion. Investing in systems to
gain accountability, managing spend to budget.
Beginning to understand
event-specific results.
Approach has changed from hindsight to foresight. Beginning to
sense and shape demand, and people are aware of the effect of promotions on their supply chain.
Can plan/execute promotions with moderate success; are focused on a
broader team approach
(integrating supply chain
initiatives); are measuring
and analyzing performance through a metricsbased approach. Team
goals are aligned and connected from the field to
the executive offices.
Internal systems are integrated; communications are
facilitated between Sales,
Marketing, Operations and
Finance. Improved reporting, yet largely transactional. Integrating and interpreting multiple data points.
People understand that TPO can
improve sales, reduce costs and
out-of-stocks (OOS), improve
margin, and identify base-price
and promoted-price volume and
profits.
Team members are
trained, and understand
their specialized and
cross-functional roles and
responsibilities. Team
goals are aligned and connected from field to executive offices. Partners
meet on strategy, and are
beginning to share data,
insights and achieve some
wins across mutual KPIs.
Able to integrate and interpret multiple data points,
order, ship, POS, loyalty, and
some category effects. Have
largely worked out systems,
communications, data quality, and process for sharing
data and information.
People can plan and implement to
support a shared promotional strategy. Trading partners exhibit transparency of data, planning, deals,
retail execution, and analysis.
Partners understand cause and
effect of promotions on sales and
profitability. Training and incentives are aligned on customers,
and customer insights are driving
success in each role.
Training is continuous.
Team members well
understand their specialized and cross-functional
roles and responsibilities.
Team goals are aligned
and connected from field
to executive offices.
Trading partner strategies
are aligned and flexible.
Sharing of data and
insights is established
practice. Wins across
mutual KPIs occur on a
regular basis.
Scientific approach to customer/shopper definition and
acquisition. Partners understand mix modeling. Able to
share “what if” scenarios,
incorporate new media, and
execute on a shared strategy
–– targeted, timely, and
effective promotions. Data is
approaching real-time, and is
down to the store level.
Limited capabilities, business-asusual approach.
2 Analytical/Tech-Heavy
Rear-view approach, but has recognized the need to avoid wasting
money, and that organizational
changes are necessary to leverage
technology. Performance gaps help
identify goals and team needs, and
establish better communications.
3 Manual But Collaborative
Beginning to understand components of optimization and key metrics across relationships.
Integrating data points, shipment,
syndicated, some POS, and limited
category effects.
4 TPO –– Trade Promotion
Optimization
Have created trading partner teams
(e.g., Planning, Category
Management, Sales, Shopper
Marketing, Merchandising, and
Market Research).
5 Optimization &
Collaboration
Have committed their organization
to consistently contribute to the
mutual profitability of the trading
partner relationship and success in
serving their shared shopper/ consumer.
Source: Joint POI and Gartner research
7
STATE OF THE INDUSTRY
HURDLES TO ACHIEVING NEXT LEVEL OF SUCCESS
POI and Gartner define
Trade Promotion
Optimization as
‘Jointly planning and
executing promotional
activities that are
Source: 2011 POI and Accenture "Charting Your Course to TPO" Survey
mutually beneficial to
manufacturer and retailer
organizations because:
No doubt planning, building, and executing a TPO project makes for a stressful endeavor. Budgets are stretched to their limits, resources are never enough, legacy systems create tremendous integration hurdles, and unreasonable deadlines put forth by project
partners go by. Despite these hurdles, once a company can execute and optimize promotions, the benefits are well worth it.
■ Information-sharing allows the
parties to better understand how
success can best be achieved.
■ Their ability to monitor and
react during the promotion is high.
■ The process is seen as a cycle
for continuous improvement.
Manufacturers and
BIGGEST FEAR: WHERE TO START?
In this tight economy, companies realize they need to spend their promotional dollars
carefully. Doing so requires cultivating the right culture, personnel and technology.
Among organizations surveyed, the biggest fear is not knowing where to start with TPO.
If companies ignore TPO, they will be left behind by their competitors and out of the
collaborative equation all together.
Trading partners are developing their capabilities and broadening their expertise with
varying degrees of success. Capability proficiency levels range from ineffective promotional practices to optimization and collaboration.
retailers alike have
the culture, people and
technology to make it
happen.’
A TPO implementation is a multi-million-dollar investment and should be approached
with a solid strategy, coupled with the desire and ability to create effective partnerships.
The question facing CPG manufacturers is how prepared they are to take on a TPO implementation. The results are appealing: an integrated suite of analysis-driven capabilities
designed to provide better insights, increase profitability, and manage day-to-day operations and communications. This undertaking, however, impacts the entire organization.
A TPO implementation is not just an IT project. Sales, Marketing, Finance, Supply
Chain and IT leadership all need to play major roles. All the key stakeholders in the
organization need to be identified through cultural and personnel assessments so they
can take up their parts in the process. Educating participants is crucial to success.
An underestimated and oftentimes forgotten piece of the puzzle is cultural change
transformation. Along with education, companies must market the new capabilities and
tools to the user base and trading partners. A strong leadership team and a TPO champion must evangelize TPO to steering committees, user groups, and stakeholders.
8
SUBSTANTIAL BENEFITS
TPO ANALYSES CURRENTLY PERFORMED
BY COMPANIES
% of Companies Performing Each TPO Type
Post-event incremental profit/ROI
90%
80%
Post-event incremental revenue
76%
70%
70%
50%
Pre-event “what-if” simulation
62%
57%
50%
43%
10%
5%
In Process of
Piloting TPO
In Process of
Implementing TPO
80%
50%
Pre-event optimization
Other
Implemented TPO
TPO MATURITY
Source: 2011 POI and Accenture "Charting Your Course to TPO" Survey
Today, up to 80 percent of CPG trading partners perform some type of post-event analysis
and, to a lesser extent, pre-event analysis (up to 65 percent) of their trade promotion
spending activities. In doing so, the primary objective is to achieve a better understanding of ROI/profitability and lift.
According to our research, 82 percent of companies on average rank “understanding
promotion ROI” as the most important factor in performing TPO (with 75 percent of
companies ranking “understanding promotion lift” as the second most important factor).
While CPG companies have made progress with their TPO activities/efforts, they often
do not realize the benefits they are seeking. Accenture research shows that only about
one-third of trade promotion events generate incremental profit. According to survey
respondents, among the top hurdles impeding successful realization and sustainability
of benefits are inability of existing systems to integrate required data sources, lack of
trading partner collaboration, and limited availability of resources with the analytical
skills/expertise.
9
SUBSTANTIAL BENEFITS
HOW COMPANIES DELIVER RESULTS
How have companies overcome some of the barriers and been able to deliver results?
First, many –– about 75 percent of our survey respondents –– are piloting or are in the
process of implementing new trade analytical approaches.
The pilots range from pre-event “what-if” simulation to advanced analytical modeling
including optimization. These companies are learning, developing skills and expertise, and
proactively building capabilities.
TPO PILOT INITIATIVES
Company
Type of Pilot
Description
Multi-Division
Food Company
Advanced TPO
(Forward Buy,
Cannibalization, etc.)
Post-event “scorecard” includes forward buy and pantry loading,
cannibalization/halo effects, category and competitor analysis,
retailer KPIs/metrics, etc.
Global Food and
Beverage Company
Pre-Event “What-If”
Simulation Analysis
Predictive modeling tool provides custom lift coefficients by customer/
product/tactic to allow for “what-if” scenario planning of promotion activities
U.S. Food Company
Promotion Optimization
(e.g., Fund Allocation)
Promotion optimization models and tool used to identify the most
profitable allocation of trade funds across customers and products
Consumer
Products Company
Integrated Demand-Supply
Forecasting
Promotion lift coefficients shared with Supply Chain for a more integrated
forecast that incorporates the impact of trade promotion events
Global Food and
Beverage Company
TPO “Localization”
(e.g., Shopper Analytics)
Pre- and post-event analysis performed by shopper segment to identify
most impactful promotion tactics to target for each type of shopper
Leading CPG Manufacturer & Retailer
Manufacturer-Retailer
Collaboration
Pre- and post-event promotion analysis performed jointly using shared data,
models, tools, KPIs, etc. – learnings discussed and applied together
U.S. Food Company
Marketing Mix Modeling
Pre- and post-event modeling and tools incorporates all elements of the
marketing mix – not just promotion (i.e., advertising and consumer spending)
Source: Joint POI and Accenture industry experience
While the results of companies piloting TPO are not as great as those that have fully
implemented it, they are significantly greater than those not doing anything.
Second, large companies –– those with over $2 billion in annual revenues –– appear to
have made more progress in implementing TPO capabilities.
What are these large companies doing differently? Those in the survey differentiate
themselves by:
■
Analyzing incremental profit/ROI post-event more frequently (85% vs. 78%)
■
Performing more pre-event “what-if ” simulation (67% vs. 44%)
■
Focusing more on category volume and profit impact (44% vs. 33%)
■
Studying competitor promotion impacts more (19% vs. 11%)
■
Trying to be a more valued trading partner (63% vs. 56%)
■
Implementing an integrated TPM/TPO solution (30% vs. 11%)
■
Using retailer POS data in implementing TPO (70% vs. 33%)
The benefits follow ...
10
TRADE PROMOTION EFFECTIVENESS PROGRAMS
DRIVE INCREASED PROFITS
BENEFITS SEEN FROM TPO IMPLEMENTATION
ACCENTURE experience in
analyzing thousands of
54%
Increase in Profitability
Decrease in Time Spent
trade promotion events
32%
Better Promotional
Forecast Accuracy
across numerous product
categories indicates that
28%
companies can realize
Increase in Revenue
28%
anywhere from 2-4%
% Achieving Specific Benefit
improvement in Return on
Sales (ROS) by using TPO.
Source: 2011 POI and Accenture "Charting Your Course to TPO" Survey
TPO IMPLEMENTATION BENEFITS BY COMPANY SIZE
68%
Increase in Profitability
43%
29%
Decrease in Time Spent
43%
36%
Better Promotional
Forecast Accuracy
Increase in Revenue
29%
39%
14%
% Companies Achieving Benefit
Companies Larger
than $2 Billion
Companies Smaller
than $2 Billion
Source: 2011 POI and Accenture "Charting Your Course to TPO" Survey
From a quantitative standpoint, Accenture experience in analyzing thousands of trade promotion events across numerous product categories indicates that companies can realize
anywhere from a two- to four-percent improvement in Return on Sales* by using TPO.
They do so by identifying the relative impacts of promotion factors such as price points,
display types, and feature advertising placement. Ultimately, companies use this information (supported by analytical tools) to identify actions that reallocate trade spending more
profitably for both manufacturers and retailers (see charts above).
* Source: Accenture industry experience.
11
CASE STUDY:
RETAIL GROCER WINS BACK SALES
A
major US grocer was losing market share. It could not justify spending more on
promotion than its competitors did. Somehow the company had to improve
performance within the constraints of its promotion budget.
The grocer was determined to improve its trade spending ROI. Using TPO, the company re-engineered its processes and developed new metric and decision frameworks.
It was able to work with earned space analytics for its circular and ad item promotion
optimization analytics to improve performance significantly.
Retail grocer’s results:
■
Categories achieved up to 30 percent more incremental sales and 20 percent more
margin
■
Incremental ad sales increased up to 100 percent for selected items
■
Incremental ad margin increased up to 900 percent for selected items
■
Average GMROI equaled 190 percent
Source: Accenture industry experience.
Our research shows that of
those companies surveyed,
over half have experienced
increases in profitability.
12
TRADE PROMOTION EFFECTIVENESS PROGRAMS
DRIVE INCREASED PROFITS
Our research indicates that those companies successfully implementing TPO achieve significant benefits in quality as well. They:
■ Spend less time and fewer resources gathering data (thus, more time for value-added
planning and analysis)
■
Make better use of trade funds due to greater visibility to ROI
■
Focus spend more against promotion-sensitive products/categories
■
Share data and analysis better across manufacturer/retailer trading partners
■
Use less-complex promotion programs
■
Apply greater consistency in using data/tools
MEASURING ONGOING SUCCESS
In this tight economy, companies realize they need to spend their promotional dollars
carefully. Doing so requires cultivating the right culture, personnel and technology.
Among organizations surveyed, the biggest fear is not knowing where to start with TPO.
But start they must; if they ignore TPO, they will be left behind by their competitors and
find themselves out of the collaborative equation altogether.
TPO BENCHMARK PERFORMANCE METRICS
Metric
Average
Best in Class
–30%
0 – 30%
% Incremental Revenue
30 – 40%
50 – 60%
% of Events that Break-even
10 – 20%
33 – 50%
% Sold on Promotion
49%
20%
% Pass Thru
75%
100%+
40 – 50%
75 – 100%
–50%
0%
17%
9%
% Incremental Profit
% Lift
Trade ROI
Trade Rate*
Source: Accenture TPM benchmarks
* Trade Rate = Trade spend as a percent of revenue
13
TRADE PROMOTION EFFECTIVENESS PROGRAMS
DRIVE INCREASED PROFITS
As trade spending continues to rise, the pressure has increased to capture greater efficiency and effectiveness. By implementing TPO approaches, CPG manufacturers and retailers can reduce inefficient spending and increase top- and bottom-line results.
While these benefits can be realized, TPO implementation alone is no guarantee of success. To deliver and sustain results, companies need to track/measure their ongoing
progress continuously. To get started and stay on track on the journey to improvement,
companies need to:
■
Agree on the key metrics
■
Benchmark current state
■
Develop tracking and measurement capabilities
■
Begin tracking/capturing results
By tracking — and improving — such metrics, companies can significantly increase revenue, return on sales, and profitability
CASE STUDY:
GLOBAL CPG MANUFACTURER
GROWS SALES AND PROFITS
T
o improve profitability, a global CPG food manufacturer analyzed its trade promo-
tion across three brands covering over 100 promoted product groups. The manufacturer wanted to find ways to improve trade spending ROI while delivering
new analytical capabilities to its Sales organization to help enable this objective.
After analyzing its trade spending ROI and building a promotion planning/forecasting tool, the manufacturer was able to identify ways to improve market share and
profitability. The company:
■ Built econometric models to predict the volume and profit lifts associated with promotion events, tactics, and timing across promoted product groups, channels and
accounts
■
Developed proxy/surrogate lift coefficients for new products/tactics
■
Developed new end-to-end trade promotion planning and execution processes
■
Supported group training, and one-on-one on-the-job coaching, for US Sales personnel achieving high adoption rates
Manufacturer’s results:
■
Improved Return on Sales by 0.5 to 4 percent across primary promoted product
groups
■ Reduced promotion forecasting error by over 50 percent and found ways to reduce
inventory by about 30 percent ($10s of millions in annual inventory savings)
14
HOW TO DEVELOP CAPABILITIES AND DRIVE VALUE
APPROACH AND INDUSTRY NORMS
In this tight economy,
Historically, companies started to improve their trade promotion capabilities by implementing trade promotion management systems so that they could manage shipment data, promotion information, claims, payments, and disputes better and more efficiently.
companies realize they
Many companies that took on these initiatives also hoped to significantly increase the
productivity of their trade spending. They believed that, by improving their ability to create plans and manage funds, they could improve trade productivity (that is, ROI).
Unfortunately, the results were limited to managing trade funds more efficiently and
accurately. There was little or no commensurate increase in trade productivity.
The result was a large bill for implementing a transactional TPM system, which provided:
■
More efficient trade fund processing operations (with cost savings)
■
More visibility to trade spend (where and how funds were being spent)
■
Little to no improvement in trade spending ROI
Consequently, many trade promotion improvement programs were slowed, and ongoing
post-TPM implementation improvement initiatives were cancelled and/or postponed
due to poor initial returns. This included trade promotion optimization projects.
need to spend their
promotional dollars
carefully. Doing so
requires cultivating the
right culture, personnel
and technology.
What management teams and program sponsors failed to understand or recognize was
that the majority of trade promotion benefits are achieved by developing better plans
and proactively course-correcting during execution –– enabled by TPO and the associated analytics to improve ROI.
To achieve benefits, companies need the capabilities to optimize trade promotion, as seen
in the chart at lower right, “Results Achieved by TPO Maturity Level.” The more mature the
trade promotion optimization capabilities, the greater the number of respondents reporting benefits.
ALTERNATIVE APPROACH TO INCREASE VALUE
To ensure quarter-by-quarter value creation and a healthy return on invested
capital, a TPO capability development program must drive benefit recognition to counter implementation costs. TPO tools alone will not enable
companies to achieve significant benefits. Along with the new
insights from TPO analytic solutions, companies must change
their decision frameworks, business processes, roles/responsibilities, and sometimes their organization structures in
60%
order to significantly improve their trade ROI.
This is why improvement programs need to focus
on business transformation in parallel
with tool development.
13%
13%
Non TPO/TPM
RESULTS ACHIEVED BY
TPO MATURITY LEVEL
100% Increase in Profitability
67% Increase in Revenue
67% Decrease in Time Spent
30%
30%
30%
Piloting/
Implementing TPO
Better Promotional
67% Forecast Accuracy
Fully
Implemented TPO
Source: 2011 POI/Accenture “Charting Your Course to TPO” Survey
15
HOW TO DEVELOP CAPABILITIES AND DRIVE VALUE
TPO CAPABILITY DEVELOPMENT APPROACH
Business Transformation
Business
Processes
Selection,
Planning
and Piloting
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Design
Change Mgmt
& User Adoption
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Data
Modeling
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Project Management
Source: Accenture industry experience
Companies need to
determine what gaps
are most important to
close. They should
prioritize these relative
to strategic and
operational need, value
potential, and ease of
implementation.
Successful programs to develop TPO capabilities require five parts. These are:
1. Selection/Planning/Piloting.
To improve trade productivity performance, it is vital to have cross-functional participation in identifying the issues that need to be addressed. We recommend conducting an
assessment of key trade promotion planning and execution capabilities relative to industry practices, strategic and operational requirements, and value creation potential.
The assessment is needed to identify the primary and critical gaps in trade promotion
planning and execution capabilities from people, process, and technology perspectives.
Companies need to determine what gaps are most important to close, and should prioritize those relative to strategic and operational need, value potential, and ease of implementation. Once the requirements are identified and prioritized, a TPO solution can be
selected and a preliminary plan created to develop the desired capabilities and an implementation schedule.
Some companies will conduct a preliminary process to select a TPO solution and identify one or two solution providers for pilots. Typically, pilots include one or two account
teams and a sub-segment of brands or product categories.
The selection, planning and piloting phase is an important one –– it helps to attain consensus and alignment across the executive team on the focus and priority that should be
put on developing and institutionalizing TPO capabilities. Results coming out of pilots
16
TRADE PLANNING & EXECUTION:
A TRUE CLOSED-LOOP PROCESS
EVALUATE
PLAN
Create
Promotion
Strategy
Evaluate Promotion
Effectiveness
Develop Targets and
Allocate Funds
Track Plan
versus Actual
Create Promotion
Plans/Events
Authorize
Payments/Resolve
Deductions
Sell-In/Negotiate
Promotion Plans
EXECUTE
SUPPORT
Organization / Roles / Responsibilities
Business and People Performance Management
Data / Systems / Tools
Source: Accenture Closed-Loop Trade Promotion Planning and Execution Approach and Methodology
provide positive proof that TPO programs should be a top business priority. Without
such support, a TPO program will not succeed.
2. Business Transformation
Companies embarking on TPO capability improvement programs often put little to no
focus on the business transformation aspects of the program. Many concentrate on
implementing TPO tools. They believe that the organization will readily pick up and use
such tools, and change the way it plans and executes decisions and actions on trade promotion. This includes developing new insights, using new decision frameworks, and
tracking and measuring progress relative to pre-determined performance levels that are
properly vetted and formalized.
As a result, many TPO pilots and programs have delivered benefits that fall far short of
expectations. Neglect and lack of focus in defining new business behaviors and working
aggressively to establish these behaviors within the organization come at a steep price.
Given the importance of business transformation to the success of TPO programs, this
component is covered in greater detail, as follows.
To be successful, business transformation project work should include four primary components:
■
Process design and implementation
17
HOW TO DEVELOP CAPABILITIES AND DRIVE VALUE
■
Scorecard and metrics
■
Organization design and implementation
■
Change management and user adoption planning
Process design and implementation: Most CPG companies have some form of closed-loop
trade promotion planning and execution process, as seen in Trade Planning & Execution: A
True Closed Loop Process (page 17). However, individuals involved in trade promotion planning and execution processes/activities across the organization are unaware of the endto-end processes and there is little coordination/collaboration across Brand Marketing,
HQ Sales Planning, Field Sales, and Supply Chain. Also, there are no standard processes
across brands, channels and accounts. Each group handles trade promotion planning and
execution differently with a proliferation of activities and tools and varied results.
Almost every CPG company can show evidence of closed-loop processes at the highest levels for trade planning and execution activities. When implementing TPO capabilities, however, these activities need to be thought through again at the more tactical process levels.
Almost every CPG
company can show
evidence of closed-loop
processes at the highest
levels for trade planning
and execution activities.
When implementing TPO
Companies that are driving successful trade promotion optimization programs have
taken the opportunity to improve the primary activities within each of the core components of their closed-loop trade planning and execution processes. This helps to ensure
that there is a clear understanding of the end-to-end processes and associated roles,
responsibilities, and accountabilities across the organization. Often improvements are
made, such as:
■
Developing trade promotion plans in collaboration with brand, sales planning, and
customer teams
■ Using pay-for-performance trade promotion methodology to incent retailers to execute
agreed-upon plans and ensure fair and equitable positions
■ Optimizing
trade fund allocations and event planning by using econometric modeling
and a focus on targeted ROIs that vary by promoted product group (require approval for
deviations)
capabilities, however,
■ Developing promotion plans via a formal process, standard fact base, and standard
analytic methods leveraging a common planning platform
these activities need
■ Using
to be thought through
again at the more tactical
fact-based analytics during sell-in to ensure growth of both the retailer’s category and the manufacturer’s products
■ Deploying cascading trade promotion metrics and dashboards to measure and improve
trade productivity
■ Conducting post-event analyses and formal promotion effectiveness evaluation sessions
process levels.
that are action-/outcome-oriented and include brand, sales planning, and account team
participation to make course corrections throughout the year, and as input into the annual operating plan process
■
Employing analytic centers of excellence to drive consistency in analysis and use of
data
■ Integrating TPM and ERP systems to ensure accurate administration of trade funds
including settlement
Scorecard and metrics: The most frequently ignored activity within TPO business trans-
formation is developing appropriate and cascading trade promotion performance metrics. To gauge progress and proactively manage trade promotion, both operational and
18
financial metrics need to be developed and viewed at all levels of the organization.
■ Operational
metrics tend to measure whether or not an organization is executing targeted behaviors and activities in an effective and efficient manner. They tend to include
measures, like planning cycle time, number of account plans agreed to and confirmed by
retailers, number of course corrections addressed and successfully implemented within
target time line.
■
Financial metrics measure the financial returns that are the outcomes of efficient and
effective trade promotion operations, including trade ROI trends relative to pre-established targets, incremental volume, incremental margin contribution, and trade as a percent of sales as seen earlier in the Measuring On-Going Success section.
When trade spend occupies 15 to 20 percent of sales, every level from account teams to
the executive suite should see and understand progress against trade promotion metrics.
Companies must institutionalize visibility and accountability to these metrics across the
organization as well –– starting with sales on the front line and ending with the sales and
operations planning and supply chain on the back end.
When trade spend occupies
15 to 20 percent of sales,
every level from account
teams to the executive suite
should see and understand
progress against trade
promotion metrics.
Most importantly, cascading metrics/dashboards should be developed so that each
level/role within the company can easily view metrics that are relevant to their set of
responsibilities associated with trade promotion within the organization.Cascading means
the ability to aggregate up to the highest meaningful summary level for executives and
drill down to the lowest level of details (e.g., individual event and account/product level
performance) for account teams. When needed, these metrics should be viewed at an
aggregate level or any level across brand, product, channel, and account or any combination thereof. These metrics must be used during pre- and post-event evaluation and
pro-active course correction processes/activities.
Organization design and implementation: This component of business transformation is
essential to ensure productive and efficient flow of activities across organizations. Often,
companies duplicate responsibilities across their organizations, and many participants in
trade promotion planning and execution activities are not clear on end-to-end roles,
responsibilities, and accountabilities.
Everyone involved in the closed-loop trade promotion processes needs to have a clear
understanding of who is responsible, accountable, consulted, and informed relative to
each step in the closed-loop processes. After designing new and improved processes, shifts
often occur in these roles across brand, sales planning, and account teams.
In many instances, a common change is the creation of a Trade Promotion Analytics
Center of Excellence (CoE). Sometimes it is centrally located; other times it is centrally
managed and locally dispersed. A Trade Promotion Analytics CoE typically maintains
the predictive and optimization models that are a part of the TPO solution. The CoE
tends to drive the analytic components of trade planning and post-event evaluation. It
provides headquarters and field sales decision-makers with the information they need to
develop, finalize, execute, and course-correct promotion plans.
Depending upon the organization, the CoE can be structured by brand, channel,
account or any combination depending upon the organization’s needs and what enables
the most effective organizational alignment. The groups need to be sized based on workload, and new job descriptions need to be created for the key positions within the CoE.
Change management and user adoption planning: Traditionally, companies implementing
TPO capabilities have focused on the tool training and associated communications as the
major change in their TPO program. Such an approach will not help companies to suc19
HOW TO DEVELOP CAPABILITIES AND DRIVE VALUE
Everyone involved
in the closed-loop
cessfully establish new trade fund strategies/tactics, processes, decision frameworks,
roles/responsibilities/accountabilities, performance metrics, targeted behaviors, and
associated business outcomes.
needs to have a clear
We recommend conducting a change readiness and change impact assessment to identify the
extent of change required across different functions within the company and each function’s
ability to absorb the identified level of change. Based on the outcomes of this assessment, the
company can develop change and capability adoption plans for each existing and new function.
understanding of who is
Successful TPO implementations typically incorporate three change adoption tactics:
trade promotion process
responsible, accountable,
consulted, and informed
relative to each step.
■
Program- and function-specific communications: Keeping the organization informed about
expectations, progress, and intended and achieved outcomes is vital. Program executive
steering committee and implementation leaders explain the purpose of the program,
intended outcomes, progress, and step-by-step requirements as the program progresses.
Typical media includes emails, conference calls, webcasts, and podcasts.
■
Classroom and web-based training: These venues are used to train large groups, like headquarters and field sales, on improving participants’ abilities to develop trade promotion
strategies, tactics, and plans that deliver increased profit contribution and ROI.
■ On-the-job, one-on-one, and small-group coaching: This change-adoption tactic can be most
valuable. For example, during certain periods in annual planning and in-year post-event
evaluation and course correction, SWAT teams of TPO champions and experts can sit
with headquarters, account team planners and leadership, and coach them in developing improved promotion plans. They can also facilitate performance evaluation meetings
to drive course correction, actions, and in-market execution.
3. Solution Delivery
Core components of TPO solution delivery include data preparation, analytic model
development and tuning, application preparation, and application deployment/use.
Every company has its methodology for application design, build, test, and deployment.
Two of the key differences that help enable a leading-class TPO solution deployment are:
■
Model preparation
■
Data preparation
In this paper, the details of tool design and implementation are not covered. Solution
providers will provide services to successfully deploy these tools with their clients. It is
important to note, however, that TPO solutions/technologies are not traditional transactional systems. TPO tools are decision science solutions, with the core of their technology grounded in econometric statistical models. The bulk of the solution design and
preparation is based on the scope of analytics required and the development of models
across products, channels, and customers, as opposed to the code and programming
associated with traditional transactional software.
To optimize trade promotion investments and plan events that drive significant manufacturer and retailer category results, advanced statistical modeling is needed. With the
models, however, data must be prepared. This takes time and focus to ensure that shipment, syndicated consumption data, and retailer POS consumption data are cleansed,
meta-tagged, and ready for modeling usage. Leading-class companies are developing
and deploying demand signal repository (DSR) technology to ensure a common and single set of consumption and shipment data can be used not only for TPO purposes, but
for other analytic purposes across the enterprise.
20
4. Support and Measurement
To gauge the effectiveness of the TPO implementation, companies need to develop capability implementation metrics and a compliance measurement function as part of the program. This capability enables companies to proactively identify and address capability
adoption hurdles during implementation. We recommend creating a role or program
function that has sole responsibility for identifying implementation/adoption problems,
recommending solutions for resolving them, and monitoring corrective actions.
Typical change adoption metrics include short, medium, and longer-term measures.
When the TPO implementation program is completed, the change adoption measurement
function transitions into a formal performance measurement function for trade promotion
operational and financial performance. It enables continuous performance monitoring and
course correction.
On-the-job, one-on-one, and
small-group coaching can be
the most valuable changeadoption tactic. For example,
SWAT teams of TPO champions
and experts can sit with
headquarters, account team
planners and leadership, and
coach them in developing
improved promotion plans and
performance evaluations to
drive course correction, actions,
and in-market execution.
21
HOW TO DEVELOP CAPABILITIES AND DRIVE VALUE
5. Program Management
During formal implementation, a dedicated program management team should be
deployed with full-time personnel who will own and help drive trade promotion capabilities. Most companies deploy formal program managers with no stake in or skills associated with trade promotion capabilities; these tend to be professional program managers.
Leading-class TPO implementations include this role –– but are primarily staffed and led
by individuals who are trade promotion owners, stakeholders, and/or practitioners.
Effective program management capabilities are depicted in the Program Management
Operating Model chart on this page.
Companies that have successfully implemented TPO capabilities have been willing to take
some of their best people offline to help drive these programs. Those companies that have
not enabled their people to participate in a focused and dedicated way during implementation often are not able to achieve the anticipated program uptake and performance.
CHANGING THE WAY TPO IS IMPLEMENTED
In recent years, companies that have achieved greater trade promotion productivity have shifted the way they finance their trade programs from “Fund the Plan” trade investment allo-
cation to “Pay for Performance” accrual-based investment.
These companies have also implemented cross-functional, closed-loop trade promotion
planning and execution processes supported by advanced analytic TPO pilots and imple-
ILLUSTRATIVE PROGRAM MANAGEMENT OPERATING MODEL
QUALITY INPUTS
Information
Consistent and
accurate data
PROCESS
Insights
Make Decisions/
Implementation
Recommendations
Reasonable
assumptions
Valid information
to resolve
cross-team issues
Coordinate
execution with
other plans
Governance
Value
Management
Program
Delivery
Ensure upward
and downward flow
of decisions
Ensure cause and
effect is addressed
Ensure timeliness and
magnitude of impact
Source: Accenture Program Management Operating Model
22
OUTPUT MANAGEMENT
ASSESSMENT
Communicate
Strategically
Manage
Performance
Engage target
audience and
align to desired
outcomes
Measure
effectiveness of
implementation;
focus on results
People
Performance
Assess people impacts
and organization change
capacity
Communications
Coordinate
systematic process
TPO solutions are not
traditional transactional
systems. TPO tools are
decision science solutions,
mentations. These changes have enabled staff to select promotion events and tactics in a
more disciplined way, thereby increasing ROI and incurring less category cannibalization.
with the core of their
These companies have been able to drive trade promotion programs with much stronger
returns/results. Note that many of these companies did not wait until their TPM system
implementations were complete to begin TPO pilots and implementations. Rather, they
took a parallel approach to improve their speed to value.
technology grounded
It is also important to note that more-recent trade promotion capability programs have
been improved in conjunction with demand signal repository (DSR) development programs to capture, prepare, and integrate multiple demand data sources: shipments, syndicated data, retailer POS data, and sometimes retailer loyalty data.
models.
in econometric statistical
Industry-leading TPO solutions are running off of consumption-based models, not shipment models. Algorithms are created to link consumption to shipments for more accurate
demand forecasting.
For efficiency and data integrity purposes, leading-class implementations are integrating
DSR, TPO, TPM, and aggregate demand forecasting systems.
23
CONCLUSION
THE COLLABORATIVE SUM IS GREATER THAN THE PARTS
Planning, building and executing a TPO project is a huge, expensive undertaking that affects
the entire organization, but it is well worth it. TPO increases profitability (two to four per-
cent Return on Sales*) by enabling companies to better share information, monitor and
react during promotions, and continuously improve.
Our research shows those companies that have successfully implemented TPO spend less
time and fewer resources gathering data and make better use of trade funds due to greater
visibility to ROI. They share data across manufacturer/retailer trading partners and apply
greater consistency in using data and tools. TPO enables companies to identify the impact
of promotion factors, such as price points, display types, feature advertising placement, etc.
TPO tools alone will not enable companies to achieve significant benefits. Along with
TPO solutions, companies must change their decision frameworks, business processes,
roles/responsibilities, and sometimes their organization structure.
Companies are implementing cross-functional, closed–loop trade promotion planning
and execution processes that are supported by advanced analytic TPO pilots and implementations. They are also taking a parallel, rather than sequential, approach to implementation to improve speed to value.
WHAT IS NEXT FOR TRADE PROMOTION OPTIMIZATION?
Trade promotion capability programs continue to improve as do implementation techniques.
Leading companies are working on:
TPO tools alone will not
■ Infusing shopper insights into the predictive “what if ” and optimization analyses to begin
to understand the impact of specific promotional events on shopper segments
enable companies to
■ Advancing the features and functions associated with optimization analytics –– top-down
achieve significant benefits.
funds allocation optimization and bottom-up event/calendar optimization versus “what if ”
predictive analytics
Along with TPO solutions,
■ Implementing fully integrated and modular solutions for business planning, DSR, TPM,
TPO, and Aggregate Demand Planning and Forecasting activities
companies must change
their decision frameworks,
■ Developing more collaborative manufacturer and retailer planning/execution capabilities
based on advanced analytic insights (some solution vendors are beginning to provide the platforms for integrated and collaborative value chain activities across manufacturer and retailer)
business processes,
roles/responsibilities, and
sometimes their
organizational structure.
* Accenture industry experience.
24
VENDORS AND THEIR SOLUTIONS
Technology is an enabling platform for TPO, and can include several integrated solutions.
To select the appropriate technology solution, a company's trade promotion objectives,
goals, priorities, and business requirements must be clearly defined.The table below, Solution
Landscape, shows the 20 major vendors serving this market and the solutions they offer. (The
information in this table focuses on the basic requirements; it is not a qualitative assessment.)
SOLUTION LANDSCAPE
VENDOR
CATEGORY
MANAGEMENT
CUSTOMER
PLANNING
AND TPM
TPO
VOLUME
PLANNING
RETAIL
EXECUTION &
MONITORING
SETTLEMENT
Accenture CAS
Adesso Solutions
AFS Technologies
alqemyIQ
Coheris
Demandtec
Klee Group
Interactive Edge
ITC Infotech
M-Factor
MEI
Oracle
Promax
Quofore
RW3 Technologies
SAP
Spring Wireless
StayinFront
Synectics Group
Xtel
Complete
Covers many requirements
Covers some requirements
Source: 2010 Gartner MarketScope for Sales Force Automation In The Consumer Goods Industry
25
CONCLUSION
HOW TO GET STARTED
Despite tools such as benchmarking and historical measures, many retailer and manufacturer
industry leaders have difficulty translating research into practice. The result is underuse, over-
use, and misuse of technology solutions, and trading partner concerns related to data sharing. Even with large amounts of customer data (POS, loyalty, etc.) providing evidence for
greater profitability, much of it is not used.
The POI Charting Your Course to Trade Promotion Optimization study demonstrates that TPO initiatives are beginning to show results and to achieve sustainable change in better planning
and executing trade promotions. TPO solutions that facilitate decisions, support best practices, and enable planning and measurement carry a learning curve that may pose a barrier for customer teams on the path to improved results. These must be anticipated and
resources planned (including dedicated/skilled personnel, budgets, time, etc.).
This research explored the process of change used to implement processes and solutions.
For a program as important and impactful as TPO, most companies need some measure
of outside assistance. The research reported here was designed to explain the process of
change and clarify what is necessary to develop an actionable plan. This planning is needed to drive more-informed TPO pilots and implementation programs, improved collaboration among trading partners, and improved trade productivity/profit contribution.
The previous two years have made it clear to trading partners that this is not the environment
in which to go it alone. Several of the largest companies have shifted their strategies to a
For an initiative as
important and impactful as
TPO, most companies need
some measure of outside
assistance. More informed
implementation and
evaluation leads to greater
collaboration among
trading partners, and
more successful TPO pilots
and programs.
26
more collaborative approach, focused on joint business planning. Expertise is gained by
engaging with peers around this type of research, education, and initiatives -- including
networking events focused on industry service (e.g., POI, GMA, FMI, NACDS, NGA,
CGT, IFMA).
To serve the industry, POI has created an accredited educational program leading to certification as a Certified Collaborative Marketer.TM With Saint Joseph’s University, POI is
designing the program (which includes TPM/TPO) to recognize industry executives for
collaborating with their trading partners.
POI also serves companies and individuals as a source of information important to the
industry. POI helps members understand best practices, eliminate wasteful trade
spending, share insights for continuous improvement, and optimize promotion through
collaboration. ■
TPO initiatives are
beginning to show results
and to achieve sustainable
change in better planning
and executing trade
promotions.
27
KNOWLEDGE PARTNER PERSPECTIVES
THE POWER OF POSITIVE PLANNING
How optimizing trade promotions
can fast-track growth
Consumer products companies have long aspired to gain a better understanding of how
Accenture CAS
(Formerly Known as CAS)
past promotion performance can facilitate improved future planning. Historically, many
companies have developed an internal capability to achieve a level of predictive planning, but in most cases the analyses fall short due to a missing component (such as models) or capability (e.g., data cleansing and management) that is too costly to manually
develop.
With the increased availability of scan and electronic point-of-sale data (coupled with
syndicated/census data), there is real opportunity to develop a foundation for predictive
planning. This can be done by applying advanced statistical methods and analyzing historical promotional behavior.
Recent research highlights three key capabilities consumer products manufacturers
require to make better trade promotion planning decisions:
■
Decomposition of volume based on tactic and price point
■
Development of consistent, accurate consumption baseline forecasts
■
Quantification of cannibalization and halo effects
By applying “ shopper insights” derived from these three capabilities, it is possible to
draw meaningful trade promotion and volume planning conclusions from a fact-based
approach. Both the enterprise and the retailer can garner improved results and profitable
growth via collaborative planning driven by shopper behavior. In a complex and competitive marketplace, having the ability to fine-tune each promotion within a retailer plan
provides the greatest potential for delivering value to all three constituents in the
exchange—manufacturer, retailer, consumer/shopper—and can be the forerunner to business growth.
Consumer products manufacturers have an opportunity to make better use of the evergrowing pool of available retail consumer data. And if consumer products companies use
this data to drive more impactful promotion planning decisions (e.g., increased incremental volume with minimal to no increase in spending), they can improve their performance
in the marketplace.
Accenture Software believes that a base trade promotion management solution and
process must be put in place if your account managers are to take full advantage of these
new optimization opportunities. Accenture CAS (formerly CAS 8), an integrated customer management and mobility software solution, covers the full scope of demand-side
operations, including trade promotion management and trade promotion optimization.
Trade promotion management is vital to enabling your users to build out a complete
annual volume plan that includes the effect on volume as well as alignment of all trade
funds associated with those promotions.
This value is further enhanced when combined with the powerful analytics of Accenture
Software’s trade promotion optimization capability. Leveraging these trade promotion
28
Using TPO software,
CPG companies will find the facts
at their fingertips, arming them
to differentiate and succeed
in a crowded marketplace.
optimization features enables manufacturers to analyze each promotion during the planning stages of the process and determine the optimal combination of price and tactic
based on historical results. In using these features, consumer products companies are
able to optimize trade spend across the brands and category.
Accenture Software trade promotion optimization helps consumer products manufacturers:
■
Improve fund utilization
■
Increase volume forecast accuracy
■
Reduce promotional out-of-stocks
■
Reduce or eliminate non-profitable or under-performing promotions
■
Reduce long-term promotion spend liability
■
Reduce deductions (in terms of number and balances)
■
Reduce administrative planning time
In an economic climate wherein many businesses are still reeling from the impact of
financial crisis, consumer products companies are under pressure to make better use of
their existing retailer consumption data. Accenture Software believes that manufacturers who use this data effectively will become winners in the marketplace. In using
Accenture CAS trade promotion optimization software, consumer products companies
will find the facts at their fingertips to differentiate and succeed in a crowded marketplace and achieve high performance. ■
For more information contact:
Gary Adams, Director-Product Marketing, Accenture CAS
Email: gary.l.adams@accenture.com +1 (678) 222-2512
About Accenture Software
Accenture Software combines deep technology acumen with industry knowledge to develop
differentiated software products. It offers innovative software-based solutions to enable organizations to meet their business goals and achieve high performance. Its home page is
www.accenture.com/software. In January 2011, Accenture acquired CAS, the leading
provider of Customer Management and Mobility Solutions, to help Consumer Products companies sell more products more profitably. Accenture Software is a dedicated business providing
innovative software-based solutions.
29
KNOWLEDGE PARTNER PERSPECTIVES
COLLABORATION
A competitive TPO advantage
The ability to predict Cannibalization (88 percent), Total Category Profitability (80%),
and Consumer/Shopper Impact (56 percent) are not only the top advanced views
DemandTec
requested in TPO but represent the three core pillars of manufacturer collaboration.
These perspectives allow a manufacturer to become a strategic partner, rather than just
as a supplier or vendor. How else can one objectively forecast how price or promotion
changes may affect the shelf, portfolio, store brand or shopper behavior?
Collaboration is defined as an intellectual endeavor with aligned interests. Fortunately,
tools have evolved to enable companies to find common ground. The top scoring collaboration elements may be addressed individually, but are certainly more effective
when leveraged inclusively.
■ Measure cannibalization: Understanding the impact of a promotion beyond your SKU,
Brand, Promoted Product Group, and Portfolio creates a comprehensive perspective but
more importantly, is a good faith estimate on a promotion’s true impact to the retailer.
Cannibalization metrics should include impact to store brand, competitors, and estimated net incremental sales to the category.
■ Estimate total category profitability:
Forecasts should include margin estimates for your
brands, but also for the retailer. Utilizing proxy margins allows for a true profit outlook
for the manufacturer and retailer alike.
■ Align on the shopper: What
is good for the consumer and shopper is good for the retailer and manufacturer. Understanding shopper behavior results in a mutually beneficial
sale though better promotions that better address consumers and shopper needs without
relying on price.
Trading partners are already using collaboration as a competitive advantage in the marketplace. We have found successful examples including the work of ConAgra Foods and
Unilever. Their approaches contain common themes. They introduce a common goal,
which may be the shopper or a mutually beneficial metric; they stressed the importance
of collaboration; and they reorganized to ensure the right structure to enable success.
The results speak for themselves, with event ROI 30 percent higher and a doubling of
their total ROI in just 2.5 years.
Footnotes:
Q: “What other outcomes are you interested in from TPO result point of view?”
Merriam-Webster Dictionary
SymphonyIRI Group(2011). Merchandising Trends: Achieving Differentiation with a
Shopper-Centric Approach, 3.
http://www.census.gov/population/www/pop-profile/natproj.html
30
Align on the shopper.
What is good for
the consumer and shopper
is good for the retailer
and manufacturer.
Symphony-IRI has recently reported that merchandising lifts are declining and the 2010
US census revealed that population growth is expected to decrease by 50 percent over
the next six decades. The marketplace will evolve accordingly, but the manufacturers
and retailers who collaborate will have the advantage over versus those who head out on
their own. ■
For more information contact:
Jon Busman, Director, CP Industry Marketing, DemandTec, Inc.
Email: Jon.Busman@demandtec.com Telephone: +1 (650) 645-7129
About DemandTec
DemandTec (NASDAQ:DMAN) connects more than 340 retailers and consumer products companies, providing common tools to transact, interact, and collaborate on core merchandising and marketing activities. www.demandtec.com
31
KNOWLEDGE PARTNER PERSPECTIVES
THE REAL IMPACT OF A PROMOTION
New simulation solutions arm executives with
higher-quality information, leading to better insights
CPG and retail companies face enormous pressures on pricing and promotions, driven
SymphonyIRI Group
by three trends: an ongoing rise in commodity prices, a tidal change in merchandising
strategies, and requirements for greater visibility in expense recognition resulting from
the 2002 Sarbanes-Oxley Act. Underlying factors for commodity price increases include
higher oil prices, a renewed interest in corn-derived ethanol, drought /flood conditions
in many parts of the world, and the rise of China as an economic power and its increasing demand for goods.
In addition, CPG and retail marketers are experiencing a tidal shift in merchandising
away from traditional print and television advertising while newer promotional media
are taking root. In-store media promotions, and the rise of social networking websites,
where consumers can exchange information on products and retailers, represent just two
of these new media.
Trade promotion software focused on tracking trade funds, but failed to improve the
quality of planning. This type of post-promotion analysis simply reveals the shortcomings of current solutions after they are executed at retail, versus arming executives with
the information they need to develop more effective price promotions. Additionally,
enterprise trade solutions are frequently complicated and thereby discourage staff in the
field from utilizing the information the solution contains.
New solutions enable these executives to answer several important questions. While
these questions appear simple, developing information-based, insightful responses has
often proven difficult in the past. Basic pricing questions have included: "What should the
everyday price be for this brand?" "How should I react if my competitor raises or lowers their prices?" and
"Oil, commodity and other factors are placing upward pressure on price; what will be the impact?" On the
promotion side, essential questions have included: "How can I spend my promotion budget more
effectively?" "What is the real impact of a promotion?" "How can I tell if a promotion will be profitable?"
and finally, "How can I look back and compare how a promotion actually performed versus original
expectations?"
New simulation solutions arm executives with higher-quality information from which
they can develop better insights. New pricing solutions help companies to determine the
impact of a change in base price as well as allow for "war gaming" by demonstrating
competitive price change impacts. Promotion solutions enable executives to simulate
and compare different promotions with which they can create the best plan of action.
They create an ROI for each promotion and provide post-promotional review after a
promotion.
32
New pricing solutions
allow for ‘war gaming’
by demonstrating
price change impacts.
While the new generation of price promotion solutions provides a quantum leap over
previous solutions, they are just one component in creating a customer-centric organization. CPG and retail companies must also structure their organizations to take advantage
of the information provided and to ensure that strategic thinking is in alignment with the
insights these new price promotion solutions provide. ■
About SymphonyIRI Group, Inc.
SymphonyIRI Group, formerly named Information Resources, Inc. (“IRI”), is the global leader
in innovative solutions and services for driving revenue and profit growth in CPG, retail and
healthcare companies. SymphonyIRI offers two families of solutions: Core IRI solutions for
market measurement and Symphony Advantage solutions for enabling new growth opportunities in marketing, sales, shopper marketing and category management. SymphonyIRI solutions uniquely combine content, analytics and technology to deliver maximum impact.
SymphonyIRI helps companies create, plan and execute forward-looking, shopper-centric
strategies across every level of the organization. Please visit http://www.SymphonyIRI.com
For more information, contact Mike Bruening at Michael.Bruening@SymphonyIRI.com
33
KNOWLEDGE PARTNER PERSPECTIVES
TRADE PROMOTION OPTIMIZATION
It’s the key to fostering
true trading partner collaboration
Synectics Group
Having been in the CPG sector as long as we have, we have witnessed firsthand the
repeated emergence of industry acronyms that result in short-term industry buzz, but
demonstrate little or no staying power. TPO –– trade promotion optimization –– is, however, a critical acronym at a critical time –– one that must become a vital, lasting element of our business process.
Why? At present, the CPG sector is at a true crossroads, and faces a challenge that all
mature sectors eventually encounter –– margin erosion. Today, margin erosion is a key
concern for both the manufacturer and the retailer. A significant contributor to that erosion is the inefficiencies in trade promotion execution. Optimizing the critical promotion investment should be a top priority to trading partners if margin erosion is to be stabilized and eventually reversed.
There are three key components that comprise industry best practice attainment of trade
promotion optimization:
■
You must have a solid closed-loop TPM solution that manages the total trade promotion investment;
■ You must have access to a sophisticated predictive analytics engine that can provide
accurate product baselines and merchandising lift coefficients enabling one-off “what if”
analysis capabilities;
■ You
need to have the strategic capability to feed the rich history and analytics capabilities (housed in the TPM/Predictive Analytics solution) into a corporate trade promotion
optimization engine. This delivers a strategic annual plan utilizing configured constraints that can solve optimally for corporate profit, revenue and volume objectives.
This solution must be tightly integrated to enable quick and accurate generation of optimization scenarios, thus enabling a quantified return on the trade promotion investment.
Last but not least, this trade promotion optimization system needs to be scalable to eventually optimize the total category, not just the individual manufacturer’s brands. This capability will provide a true catalyst toward fostering the collaborative environment for the
retailer and manufacturer, to maximize the close to $200 billion spent annually on trade
promotion. The time has never been more pressing to collaborate, and the technology is
available today to accomplish the goal.
Synectics Group and River Logic have partnered to develop the TPO Planner. The TPM
34
Margin erosion is a
key concern for manufacturer and
retailer alike, and a significant
contributor to this erosion
is inefficiency in
promotion execution.
expertise of Synectics Group (26 years) and the Constraint Oriented Reasoning (COR)
and Enterprise Optimization (EO) expertise of River Logic (21 years), partnered over
two years ago to develop the capability to deliver corporate/account-level annual optimized promotion plans.
Once the plan has been approved, it can be electronically fed to your TPM solution,
where, utilizing the power of predictive “what if” analysis, it can be adjusted based upon
various market conditions. This tightly integrated capability enables the manufacturer to
monitor real-time results against an optimal plan that results in a quantified and significant return on the trade promotion investment. ■
About Synectics Group, Inc.
Synectics Group, a leader in Trade Promotion Optimization (TPO), helps CPG companies
dramatically improve their strategic trade promotion planning process through powerful optimization and predictive analytics. Our trade promotion optimization solution, the TPO
Planner, includes work-flow to create and allocate budgets, optimize corporate calendar
templates, easily create “what-if” customer plans with optimized trade promotion calendars,
and manage incremental trade funds requests.
For more information, please contact: Wayne Spencer, SVP Business Development,
Synectics Group, Inc. email wspencer@synecticsgroup.com
35
CHARTING YOUR COURSE TO
T r a d e
P r o m o t i o n
OPTIMIZATION
AMID ECONOMIC STORM,
OPPORTUNITY
This new POI and Accenture study shows how TPO helps
leading companies weather the winds of change by moving
from trade spend management to promotion effectiveness.
ACCENTURE is a global management consulting, technology
PROMOTION OPTIMIZATION INSTITUTE (POI) brings
services and outsourcing company. Combining unparalleled
together manufacturers, retailers, solution providers, analysts,
experience, comprehensive capabilities across industries and
academics and other industry leaders. Members of POI share
functions, and extensive research, Accenture collaborates with
cross-functional best practices in both structured and informal
clients to help them become high-performance businesses. In
settings.
doing so, we leverage our industry knowledge, service offering
expertise, and technology capabilities to identify business and
Additionally, members benefit through our industry alliances
technology trends and develop solutions that help clients cre-
and events, the CCM program, research, and the Promotional
ate sustainable value for their customers and shareholders.
Collaboration Capability Matrix (PCCM). POI aims to instill
a financial and metrics-based discipline not typically found
Accenture’s global Consumer Goods and Services practice
with other trade groups.
focuses on helping clients across all segments of the food and
beverage, alcoholic beverages, home and personal care, apparel,
The goal of our innovative approach is collaborative promo-
agribusiness and consumer health industries.
tion optimization. The focus is on the customer/shopper
through sales, marketing, and merchandising strategies.
We support consumer goods companies seeking large-scale
growth, major operational efficiencies, and workforce transfor-
Executive advisory boards keep us apprised of industry needs
mation in their efforts to become higher performance businesses.
and help us provide desired outcomes for members, sponsors,
www.accenture.com
and academia. www.P-O-I.org
For more information about the study, please contact Michael Kantor (mkantor@p-o-i.org), Gary Singer, Partner (gary.e.singer@accenture.com), or
Kenneth Dickman, Partner (kenneth.dickman@accenture.com).